Do External Sources Generate Greater Investor Awareness that Can Affect a Firm's Value and Cost of Capital?
Review of Accounting and Finance, Vol. 9, No. 4, 2010
13 Pages Posted: 15 Oct 2013 Last revised: 24 Aug 2017
Abstract
This paper examines whether focused attention on a firm by an external organization, group, or influential analyst generates greater investor awareness that can affect a firm’s value and cost of capital. This study is motivated by contemporary research that provides support for the hypothesis that investors have limited attention. Prior studies (e.g., Ahmed et al. 2005, Garvey and Milbourn 2001, and Davis-Friday et al. 1999) have focused on how investors’ limited attention has influenced their analysis of firm-specific financial data. The studies have shown that investors may have limited attention and hence pay more attention to the more salient financial statement items. I extend this stream of research by empirically testing to determine if external sources attract investors’ limited attention to a firm.
Keywords: limited attention, behavioral finance, external sources
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